A blog of the NYU Colloquium on Market Institutions and the Leipzig Colloquium on the Market Order

Update on Government and Science

The New York Times of January 22 reports that the Obama administration has created a “billion-dollar government drug development center to help create medicines” as part of the federally funded National Institutes of Health.

According to the article, its rationale is to undertake research leading to the commercial development of drugs that has mysteriously lagged in the U.S. The article makes no mention of the regulatory costs drug firms face. The moving force behind this new center is NIH Director Francis Collins, famously (and embarrassingly) associated as runner-up in the Human Genome Project to Craig Ventner’s privately funded effort.

The Times marvels at Collins’ “ability to conceive and create such a center in a few short months.” Yet his political connections apparently run quite deep. As Thomas McQuade reminds me, Bill Clinton arranged for a face-saving event for Collins in which the human genome “race” was declared a tie.

The intended role of this new center meshes well with Obama’s call for managing American competitiveness via government intervention. But such enthusiasms are not new or peculiarly American. Explicit government collaboration in commercial R&D with private firms has been de rigeur in Europe for many years and has been gradually accepted and implemented in America by politicians, the government run funding bureaucracy, and firms eager for special guarantees and subsidies for the past several years.

The flawed market failure arguments pertaining to “basic research” have morphed to apply to the commercial end of R&D to further “competiveness in the global knowledge economy.” In reality, however, this unwarranted extension of government insinuation into the private sector is just a more modern version of 1970s “industrial policy” and should be rejected for the same reasons.

“A damning analysis of Celera’s scientific method and data has argued the company used wholesale information from the rival, publicly funded project and that it had failed to publish a truly independent DNA sequence …. In a study published in the Proceedings of the National Academy of Science, the scientists said the information freely made public by the Human Genome Project was what provided Celera with the vital clues enabling it to finish its own DNA jigsaw puzzle. Sir John Sulston of the Sanger Centre in Cambridge did the analysis with Robert Waterston from Washington University in St Louis, Missouri, and Eric Lander from Massach-usetts Institute of Technology in Boston. They said judging the scientific approach used by Celera was impossible because the company’s method was so reliant on exploiting the public information of its rival.

Sir Aaron Klug, a Nobel laureate and former president of the Royal Society who has independently assessed the study, said the new analysis showed Celera’s published sequence of the human genome was not independent.”

Right on, Bill. It makes no sense to attempt central planning of innovation. Do they want no-surprise innovations?

I don’t see how the story LK links to would gainsay anything Bill said in his post. The charge seems to be that Venter’s team did not throw away information. If the news report is right, the worst that can be said of Celera is that they did not make it clear how much public information they used, a charge they dispute.

Mr. Keynes’s comment speaks to the notion that scientific research occupies community spaces in which individual contributions should be seen in terms of the interactions among scientists that occur through publications, conference and working papers, as well as other informal modes of interaction. In the case of Craig Venter, prior to launching Celera in 1998 he worked at the NIH from 1984 doing research on the human genome. While he surely benefited from his early association with the NIH, so did the government-funded Human Genome Project (HGP) benefit from Venter’s work at Celera. Two observations are useful: while the HGP required $3 billion of government funding, Celera was able to do it for $300 million. While I harbor no free market fantasies, the success in discovering the human genome sequence by the HGP and Venter does reflect what a little competition can do.

Lord Keynes shows us a series of misunderstandings (just like his namesake). Chomsky makes zero effort to substantiate his claim of the US government financing 85% of all electronic R&D. It is far more likely the government specified a function it wanted (like it did with the internet) and funded the development of that function. That is completely unlike the proposal to just “create medicines”.

Besides, with the internet, the US basically asked for mail, file transfer, and remote login. The idea was to facilitate communication between the military and universities doing development work. The body of work, such as the web, came outside of any government subsidy or development dollars.

The evidence that the government funded something is not evidence that it should or that its having done so was the best, most efficient way of having gone about it. And when the government has its fingers in everything, the argument that some company or other used something developed by or for the government is a red herring. It also proves nothing.

That the government funded something is evidence of nothing except that the government funded something. To presume otherwise is just, well, presumptuous.

The claim that the government has its fingers in everything, however, is absurd. Government spending was 23% of GDP last year (remember, C+I+G+NX = GDP), and a very small portion of that was put into into research. Last year the NSF and NIH combined spent only $39 billion, a whopping 0.26% of GDP.

Your argument was that, because the government has its fingers in everything, private industry can’t avoid benefiting from things the government has its fingers in.

I think it’s telling that, for only $39 billion, the government creates products with such wide benefit.

I assume the neoclassical economist would respond that $39 billion would be better spent by individuals that are responding to market incentives. However, I have to ask, what is the market incentive to produce basic research that promises no practical application?

This seems like a case of a public good that has a free rider problem – why aren’t those that benefit from basic research putting more into the public funding pot?

You know as well as I do that that number does not even begin to reflect government spending on science. What is that, the NSF number? What about the budget for the Dept. of Energy? Or the research and development part of the military budget? Then there are various subsidies as well. So your number is not even close.

There are plenty of market incentives to produce basic research. Not the least is the entrepreneurial discovery process which can lead to innovations. But aside from that, you assume that nobody wants to know anything outside of money-making (other than those wise, beneficient public servants in government, of course). The fact of the matter is that there is plenty of private money and private nonprofits more than willing to fund basic research. And there would be yet more if the government didn’t take so much money from people.

Entrepreneurs don’t fund basic research through their entrepreneurial ventures, or at least they shouldn’t. It offers a very bad chance of reward. There’s probably no return at all on investigating most basic research questions. For example, learning how it is that male seahorses evolved to give birth. But hey, maybe through answering that question we’ll learn something about reproduction in general that could be applied to reproductive therapies! You won’t know which basic research questions will have practical applications until you’ve spent the money to answer them.

I’m skeptical that private funding (I assume through non-profits) would be sufficient to fill the void left if the government ceased all basic research funding. I doubt that the marginal propensity to give to research non-profits is anywhere close to 1. If you cut government sponsored research, you’re going to be cutting research funding in general unless the population spends their entire 1% tax cut on research.

I love how you’re trying to have it both ways. You have been arguing that if the government doesn’t support scientific research, nobody will, but at the same time you have been arguing that the amount the government spends is so tiny that it doesn’t really amount to much at all. If it really is as small as you say, then the vast majority of basic science funding does not come from government sources anyway. Or it is really not as small as you say,and the government does have its fingers in most everything. But you can’t have it both ways.

BTW, the government is not just the federal government — who funds in many ways other than NSF and NIH. There are also state governments, you know. And there is university support, which is a subsidy on basic research.

One argument has it that since taxpayers have to foot the bill for much of the research that goes on in academia they should expect to benefit from it, which includes a) access to the tens of thousands of papers published by academic labs; b) the benefits associated with the thousands of clinical trials performed by academics, doctors and industry; and c) all the results pouring out of translational research studies involving personalized medicine. The amount of tax payer “investment” in basic and translational medical research as a percent of GovCo’s discretionary budget is probably tiny. But as a proportion of all the money directed toward basic and translational research, both private and public, I bet it’s substantial.

Qua libertarian, I don’t think in principle the taxpayers should be forced to fund basic or translational medical research. On the other hand, I think it unlikely that a purely private model would sustain the level of research activity we see today. Of course I also acknowledge that a lower level of activity may be more prudent in terms of bang for buck. And make no mistake, all those freely available scientific papers published by academia are mined by private companies and variably influence their drug pipelines. A sticky wicket for sure.